How lawsuit against Classmates.com ended in paltry $3.93 payouts

Attorneys got paid $800,000; judge on the case sees the injustice.

Nearly 700,000 people received e-mails yesterday notifying them of a payment available to them through PayPal. Good news, but just barely: the payment was for $3.93, just about enough to cover your afternoon latte. The payment was the result of a class-action lawsuit filed in 2009 earlier against Classmates.com that affected about 60 million users in all.

Some class members took the time yesterday to tweet about the irrelevance of such a meager sum. "I just got $3.93... Woo, hoo, yawn," wrote Bart Everson, in a typical reaction. "Shall I get it all in pennies and roll around on the bed in it?" joked Lisa Pett. "I knew high school would pay off eventually," quipped @onedavedeep.

In 2011, Classmates users who took the time to actually object to the settlement weren't so humorous. Many expressed outrage that the lawyers who filed the class-action had asked for $1.05 million, while they were going to be offered $10 or less.

"I registered as a user of classmates.com and have in no way, shape or form been damaged by whatever the asshole attorneys are claiming," wrote Curt Miller, one of the 375 objectors whose e-mail became part of the public record. "This is a complete waste of time for all involved."

US District Judge Richard Jones read those hundreds of objections and took them to heart. In a June 2012 order approving the settlement, Jones describes the long, winding road to the $3.93 payment that popped up in almost 700,000 in boxes yesterday. Turns out, Jones is about as happy with the results as many of the objectors were.

One long negotiation with "almost no individual benefit" to users

"The overwhelming majority of those 60 million users will receive nothing," acknowledged Jones in his final order (PDF). "About 700,000 of them submitted claims, and will receive less than four dollars each for their efforts." Classmates will pay $2.75 million to class members, $800,000 to the lawyers who negotiated the settlement, and more than $1 million in administration costs, as well as its own legal costs, Jones noted. "If the purpose of class action litigation is to impose hefty costs on corporations accused of wrongdoing, one could view this settlement as a success. But class actions, as the lingo implies, are supposed to be about class members. From their perspective, it is difficult to muster much enthusiasm for this settlement."

The $3.93 sum came about from dividing the $2.75 million payout by the nearly 700,000 users that made a claim. (Full disclosure: the author of this article received one of those $3.93 payouts.)

The case originated with two lawsuits claiming that Classmates.com had sent out millions of deceptive e-mails telling users that an old friend was trying to contact them, and had viewed their profile or signed their "guestbook." For the great majority, that wasn't true; no one at all had shown an interest in their profile. About 60 million users were contacted, and about 3 million actually took the bait, paying between $10 and $40 to Classmates.

Classmates users may not be thrilled with the current settlement, but an earlier version that was thrown out was far worse.

The current settlement is "underwhelming," acknowledged Judge Jones, but it's a "dramatic improvement" over a proposed 2010 settlement. That one would have let Classmates off the hook by paying class members around $52,000 in all, while paying the lawyers who brought the case more than $1 million. "This case is a powerful example of the need to be wary of class counsel's inherent conflict of interest once settlement negotiations begin."

The earlier settlement would have given most users a $2 coupon for Classmates.com—a service they may not have even wanted. “This is the hallmark of a promotion for Classmates, not of a benefit conferred," wrote Jones in an order slamming the earlier proposal. "Class members mocked the $2 coupon... and, almost uniformly, decried a settlement that provided them with little benefit while making more than a million dollars available for class counsel's fees."

After the e-mail blasts were sent out to users, two attorneys took it upon themselves to interject themselves in the case: Christopher Langone, a Classmates user and attorney who filed a pro se objection once he heard about the settlement in 2010; and Charles Chalmers, a California attorney who filed on behalf of two other objectors. Judge Jones described Lagone's input in the case as "not helpful," and not any more useful than the dozens of objections from regular citizens who didn't have attorneys. That didn't stop Lagone from asking the court for $180,000 in attorney fees, as well as a $50,000 "service award." Jones denied the request. Chalmers, for his part, thought he was entitled to around $14,000, and was turned down as well.

A third objector, Michael Krauss and his lawyers at the Center for Class Action Fairness, actually did help in Jones' eyes. CCAF makes a habit of objecting to class action settlements it deems unfair across the country. "Mr. Krauss provided substantial legal authority for his positions, much of which was helpful to the court," noted Jones.

Krauss didn't ask for fees for his attorneys' work, but class lawyers went on the attack against him and CCAF. They barraged CCAF with document requests seeking its tax returns, verification of its not-for-profit status, and information about its ownership and funding sources. The resulting subpoenas were "vastly overbroad and overreaching," wrote Jones, and "amounted to a witch hunt." There was no reason "to engage in the litigation assault that class counsel chose here." Jones sanctioned by cutting their fees by $100,000, down to a total of $800,000.

Documents from the case are available on a website describing the class-action lawsuit.

The problem is not the lawyer charge too much (though they probably are).

The problem is classmate baited 3 million people paying $10-40 for nothing. That's 30 millions+ right there. At the end they only need to pay back 5 million or so after the settlement and legal cost. This suggests in United States of America it is better to scam people first, then pay fraction of a damage to a fraction of the affected users. Heck, even if the judge ordered them to pay $20 to each class member that company still make money over this.

The lawyer may makes a lot of money, but 800,000 is nothing compared to the 30 million that classmate pocket.

It's ridiculous when the payout is less than the profit resulting from the wrongdoing. One point of a lawsuit like this is to discourage such wrongdoings in the future, but this case only reinforces that companies can abuse their customers and consider resulting lawsuits the cost of doing business.

As others have said, at a minimum the damages should've been $X per person who filed for the payout, where X > {cost to sign up}. By the time it gets to a lawsuit and there is sufficient proof that it was an intentional act, the company should be not merely reimbursing but paying a fine/penalty. So, $50 per claimant, say--that would've been a payout to class members of $35M in this case. Which would've at least been a significant fraction of the profits they gained from the wrongdoing, and might even have exceeded it. (Even if Classmates.com could prove that all of the claimants only paid for the $10 membership, and they therefore paid, say, $20/ea, that would still be $14M, again a relatively substantial fine.

The problem is classmate baited 3 million people paying $10-40 for nothing.

Can somebody clarify what Classmates.com actually did wrong? Maybe I missed it in the article, but what was the scam in the first place? This is a bit overwhelming when I just want a sentence or two.

The offense was sending emails to people claiming that an old friend was actively trying to get in touch with them, when in fact there was no such friend. The victim would then be required to sign up for a membership (the $10-40 fee) in order to see who it was. Surprise surprise when they found out they'd paid that for nothing.

This is hardly surprising. All too often, class action lawsuits enrich the lawyers who file while offering next to nothing to the alleged victims, particularly when the labor of collecting is taken into account.

About a decade ago, I qualified for a lawsuit alleging that Apple claimed computers would be able to run OS X when they would do so only poorly. Despite the fact that I had two such computers, the payoff for me was so poor and the filing hassles so great, I've have been earning only about $5/hour for my labors. Needless to say, I didn't bother. I also had enough sense that I wasn't expecting those low-end models to work very well anyway.

It's a game the lawyers on both sides of these disputes pay. There are typically millions of 'victims,' so paying them more than a pittance is costly in comparison to paying the suing lawyers even six or seven figure sums and shorting the victims. So the suing lawyers agree to a settlement that pays little per victim and comes with burdensome collection troubles so most victims don't even bother to collect. In exchange for that, the company sued agrees to pay the suing lawyers well. Both sets of lawyers make out like bandits while the public gets shafted. It happens over and over again.

There is a solution to this. Rather than pay the suing lawyers based on the size of the settlement offered, those lawyers should be paid only a percentage of the settlement fees that are actually paid out. Make the settlement collection so onerous to collect that few file, and these lawyers would get almost nothing.

It'd let those who believe their so-called lawyers have treated them badly to punish their lawyers. Don't collect and your lawyers don't get paid. In this case, not collecting your $3.93 would short those lawyers a little over a dollar.

Make this change and we'd also see a lot fewer of these frivolous lawsuits. The public rarely benefits from them anyway. The costs are simply added to to cost of doing business.

So, I got my $3.93 check in the mail from this very settlement just 2 weeks ago. I was never expecting something more. In fact, when I signed up, it was made clear that there would be so many people in the class action that it would never be over $10.

It's not like Classmates ruined my life. So I guess I'm not personally concerned about this amount.

Over the years I've been party to a couple of class action lawsuits ("benefits" of adopting technologies, products or services the first day they come out), from those experiences all I've learned is not to bother returning the paperwork the last couple of times I've received notices of a class action lawsuit taking place.In every single instance the only ones who benefited where the lawyers and the company being sued.

I am tired of this.The company being sued has always come out ahead.As mentioned in some of the comments, in my cases as well, the companies involved, even after expenses and payouts, still make a considerable amount of money from their wrongdoing!Scam the customer, pay hefty lawyers fees and some fines and settlements and still make a good profit; what gives?Oh yes and either I got a coupon of some sort or $5.00 to spend as I wish.

They really need to reform this so that the maximum lawyer fees in class action suits is dependent on the amount individuals receive. For example something along the lines of no more than three times the amount and individual receives for classes consisting of 10,000 or more, otherwise no more than 2x.

Things gone wrong:- company pays back less than amount it earned;- lawyers compensation not tied to victims compensation;- judges that can do nothing to change this;- lawmakers that do nothing to change this;- citizens not demanding changes.

Class action suits are always about the laywers. I've gotten notices for probably half a dozen different classes. I never even respond, because a $3.93 payout would eclipse all of them.Real reform would be to make the lawyer part of the class - he gets paid the same as anyone else.

...Over the years I've been party to a couple of class action lawsuits ("benefits" of adopting technologies, products or services the first day they come out), from those experiences all I've learned is not to bother returning the paperwork the last couple of times I've received notices of a class action lawsuit taking place...

My solution:• Always delete these fishy marketing emails straight away, no matter who they come from (even if they come from a service I'm already registered for).• NEVER BUY ANY product or service during the first days after it comes out. Always wait for Version #2 or #3, by which point I can get advice on Ars Technica etc. as to whether it's any good!

My question is very simple (perhaps even naive), but why did they choose to settle at all? Why didn’t they wait for the trial to follow its course and for the Judge to sentence Classmate.com to whatever he deemed fare?

On a more general note, why do half the non-criminal trials I hear about from the US seem to end up in a settlement rather than a sentence?

The offense was sending emails to people claiming that an old friend was actively trying to get in touch with them, when in fact there was no such friend. The victim would then be required to sign up for a membership (the $10-40 fee) in order to see who it was. Surprise surprise when they found out they'd paid that for nothing.

Ah, thanks. Obviously the victims should then get their "$10-40" fee back, plus money to compensate for their wasted time. No wonder they're mad about getting <$4!

I'm all for the victims getting a fair share of the spoils when they do a fair share of the work to get it. Sitting back and waiting for your check does not constitute work.

Note that if you don't want to get a $4 check, you were free to bow out of the class and sue the site to your heart's content. You might have even gotten your $10-40 back, it just would have required effort on your part.

But by all means, keep on bitching about how the man is screwing out of something you didn't earn.

It was their money to start with. How the hell do you get that the "didn't earn" money that was theirs to begin with? It's like saying if someone stole $10, you should be happy to get back less than half of that.

I'm all for the victims getting a fair share of the spoils when they do a fair share of the work to get it. Sitting back and waiting for your check does not constitute work.

Note that if you don't want to get a $4 check, you were free to bow out of the class and sue the site to your heart's content. You might have even gotten your $10-40 back, it just would have required effort on your part.

But by all means, keep on bitching about how the man is screwing out of something you didn't earn.

Ted Frank and the so-called Center For Class Action Fairness filed an amicus brief in support of AT&T in AT&T v Concepcion. This anti-consumer ruling was covered by Ars Technica on April 27, 2011.

Ted Frank is also one of the editors of the web site OverLawyered.com , and has written about AT&T v Concepcion on his "Point of Law Blog" here (August 10, 2010), here (November 09, 2010), and here (May 02, 2011. "Consumers Win...").

Today's U.S. Supreme Court decision in AT&T Mobility, LLC v. Concepcion, invalidating California's protections against unfair provisions in contracts effectively eliminates the right of consumers to join together to fight powerful corporations in court and will lead to enormous abuses of consumers by corporations, Consumer Watchdog, a California non-profit consumer advocacy organization, said today.----------------You can read the opinion in AT&T Mobility v. Concepcion by following this link to SCOTUSBLOG.

Here's what happened and why it matters. The Concepcions were entitled to "free" cell phones under their contract. Then AT&T charged them thirty bucks for "sales tax." They joined a class action with others who got shafted the same way. Everybody's claim was too small to litigate alone, but together they had something worth a lawyer's time....Why does this matter? I expect to see such arbitration clauses and class action waivers in every single contract we get in our hands, from now on. The Supreme Court just gave corporate America a way to slam the door to the courthouse in our faces. No lawyer will litigate a thirty dollar case against a giant corporation. Now corporations can strip us of our class action rights just by inserting a term in a non-negotiable adhesion contract.

The arbitration writing seems to be on the wall, and that has consumer advocates on edge, but not Alan S. Kaplinsky, a partner at Ballard Spahr, who calls himself “the pioneer of class-action waivers.”

Kaplinsky represents the nation’s largest banks and defends financial institutions that have been sued by consumers. In the following interview, see why he believes arbitration is good for consumers and companies.

Have legions of no-longer-needed corporate lawyers been laid off, now that big corporations don't have to worry about costly litigation from consumers?

While lawyers are blood-sucking leaches, consumers often get screwed in these class actions, and the idea of "tort reform" has appeal, current proposals for "tort reform" seek to make it harder for individuals to sue corporations, but not the other way around. In their world view, corporate lawyers are not the problem, but lawyers who represent individuals against corporations are.

To get a credit card, a consumer generally must sign a detailed agreement. In the fine print, almost always, is an arbitration clause that says that if consumers want to dispute fees, they must do so through arbitration, not in court.

A 1996 federal law allowed consumers to take their disputes to court. But in its ruling Tuesday, the Supreme Court said arbitration clauses in those agreements trump that law.-----------Your Supreme Court at work protecting consumers the way the usually do. Which is, not.

It's almost funny how the people who describe themselves as "Constitutionalists" and express reverence for the Founding Fathers celebrate every nail-in-the-coffin of the 7th Amendment the Founders wrote into the Bill of Rights, becuase certain interests find the 7th Amendment to be inconvenient.

Judge Jones described Lagone's input in the case as "not helpful," and not any more useful than the dozens of objections from regular citizens who didn't have attorneys. That didn't stop Lagone from asking the court for $180,000 in attorney fees, as well as a $50,000 "service award." Jones denied the request.

What a grade A douche this Lagone is. "Your honor I vehemently object to this settlement as it disproportionately favors the lawyers. Now here's an invoice for my objection."

Classmates.com:+ Baited $30+ million out of those 3 million sign-ups.- Paid est. $5 million total in legal and settlement costs.+ Walked away with $25+ million.

= God Bless America.

I am in a way Hoping that in the next 20 Years I might see the true Downfall of Asshole Greedy Corporations.I got no issues with Honest Decent Businessmen.My Brother is one of those but as far as the scumbag greedsters goes I wish the worst for you.